Federal Payroll: 2018 Year-End Preparation and Planning for a New Tax Year

Preparing for Changes

With 2018 year-end tax activities under way, gearing up for the new tax year can be equally as important for employers. There are various changes on the Federal payroll level, recently announced, that may potentially impact you, as an employer. Knowing of these changes can help you determine, and plan accordingly.

What to know for Year-End 2018

The taxable wage base is the first $7,000 paid in wages to each employee during the calendar year.

2018 FUTA Credit Reduction States have been announced. Learn more about the FUTA Credit Reduction States here.

Form W-2 and Form W-3

For the 2018 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, the filing deadline is January 31, 2019, regardless whether you plan to file by paper or electronically. You can view the instructions for Forms W-2 and W-3 at the IRS website or download a PDF file.

Employee/Employer Social Security Tax Withholding

The 2018 Social Security tax rate is 6.2% (for each employee and employer), for the first $128,400 in wages. The amount reported in box 4 should not exceed $7,960.80 ($128,400 x 6.2%).

Reporting of the Cost of Coverage of Group Health Insurance

Many employers will be required to report the cost of their employer sponsored group health plan coverage, on employees' 2018 Form W-2. This reporting is informational only, showing the value of the employee's healthcare benefits, and does not affect the employee's tax liability.

Who must report. Employers who filed 250 or more Form W-2's for the 2017 calendar year will be subject to the reporting requirement on W-2's for 2018.

Tracking the cost in QuickBooks Desktop. Intuit QuickBooks Desktop includes a tax tracking type, Health Coverage Cost, to support this reporting requirement. By using this tax tracking type, you can track the cost of coverage to be reported on your employees' 2018 Form W-2 in box 12, code DD.

Additional Medicare Tax
Beginning January 1, 2013, employers have been required to withhold a 0.9% Additional Medicare Tax on an employee's compensation exceeding $200,000 in a calendar year. The Additional Medicare Tax is paid by the employee; no employer share of the Additional Medicare Tax is required. The Medicare Tax reported on the 2018 Form W-2, in Box 6 will be a combined total of the employee Medicare tax, and Additional Medicare Tax (if applicable).

Since its introduction, information on this new payroll tax item has been provided throughout, including setup details for our Intuit QuickBooks Desktop Payroll customers. More information can be found in our Additional Medicare Tax User Guide, or here.

What to expect for 2019

Form W-4, Employee's Withholding Allowance Certificate

It is recommended that employees review their withholding every year and if necessary, fill out a new Form W-4. Employees who claimed exempt on their 2018 Form W-4 will need to complete a new Form W-4 for tax year 2019 by February 16, 2019, in order to maintain their exempt status for the rest of the year.

The IRS is strongly encouraging all employees to do a paycheck checkup to ensure they withholding the proper amounts. See for the IRS Withholding Calculator more information.

Federal Tax Withholding Tables for 2019

Federal Withholding The IRS has not yet published the 2019 Withholding Tables. We will continue to monitor this and update this article. For 2018, the withholding allowance amounts remain unchanged, while the withholding tax brackets have been indexed for the upcoming year. For additional details, please refer to Notice 1036.

Social Security and Medicare Taxes

The wage base for the Social Security Old Age Survivor's and Disability Insurance (OASDI) tax will increase for 2019 to $132,900.

The Social Security tax rate remains at 6.2% for 2019, for each employee and employer.

The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2019. There is no wage base limit for Medicare tax.

Additional Medicare Tax

Under the Affordable Care Act (ACA), effective January 1, 2013, in addition to withholding Medicare tax at 1.45%, employers must withhold a 0.9% Additional Medicare Tax from wages paid to an employee once earnings reach $200,000 in a calendar year. Employers are required to begin withholding Additional Medicare Tax in the pay period in which employee wages reach $200,000 and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.

As an employer, you must activate this tax tracking type in Intuit QuickBooks Desktop Payroll. For complete details, click here.

Many provisions have been enacted since the signing of the Affordable Care Act. However, two of the most anticipated, yet complex mandates went into effect January 1, 2015. Read the complete details here.